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Is It Over Yet?

Who Else Could Ever Ease As Quantitative As Me?

When the Fed launched its first episode of quantitative easing in November 2008 (1.25 trillion in MBS purchases and 175 billion in agency purchases), investors largely embraced it and considered it a necessary move given the ongoing panic in credit markets and the threat of deflation. The second round of Quantitative Easing (600 billion in long term treasury bond purchases) in November 2010 was more divided since financial markets and the economy had rebounded and deflation was no longer considered a major threat. The Fed justified its action by stating that core inflation (different from headline inflation which includes energy and food prices) was running below its desired levels and unemployment was still unacceptably high. This third round of QE (open-ended purchases of $40 billion of mortgage debt a month) has seen far more critics than supporters given that the majority sentiment among investors before QE3 was that monetary policy was already overly stimulative.

The tools that Bernanke has used to stimulate the economy have been very unconventional. Without any precedent it is very hard to tell if Bernanke is leading us down the road of recovery or high inflation but it is clear that there is a high degree of concern that it will be the latter outcome.
When the picture becomes clearer he will likely either be boasting as he did in our hit track QE2 or making excuses for providing excess liquidity like Greenspan did in Greenspan’s defense